China Investors Looking to U.S. Real Estate as Safer Way to Diversify Portfolios

California and other U.S. real estate markets are likely to see an intensification of upward trends in Chinese investment due to the recent turmoil in China stock markets, a longtime Asia expert predicted recently at a breakfast gathering hosted by the California Chamber of Commerce Council for International Trade.

The stock market losses suffered will likely cause Chinese citizens with money to invest to diversify their portfolios into locations such as the United States and Canada, said Dr. Bruce Pickering, vice president of global programs and executive director of Northern California for the Asia Society, at the September 4 breakfast.

Dr. Bruce Pickering, Asia Society

He said he has no doubt that the Asia Society study now underway on inbound direct investment from China will show Chinese investors seeking to offshore their money into the U.S. real estate market.

The stock market is a smaller element of the economy than in the United States, but the market adjustment was a troubling issue for the Chinese Communist Party, which is much more closely tied to the country’s economic performance than governments in the West, Pickering said.

Also opening the government to criticism was its handling of the massive explosion in the port city of Tianjin in August.

‘Guided Capitalism’

Xi Jingping, president of the People’s Republic of China, has been touting China’s “hybrid model” of “guided capitalism” as having “superior characteristics” to liberal economic systems in the West, Pickering noted.

He noted that the Chinese have much to be proud of, including:

• Remarkable economic growth rates, often reaching 7% to 9% annual growth over the last couple of decades. Once a small percentage of the global economic system, China has grown to the world’s second largest economy and is poised to overtake the United States by 2030.

• China has achieved a middle class lifestyle in just two-and-a-half decades versus a couple of centuries for the United States—a truly remarkable achievement.

China Challenges

On the downside, Pickering spotlighted some of the challenges facing China:

• Its highly assertive foreign policy has made nearly all of its neighbors very uncomfortable.

• It is the largest emitter of greenhouse gases in the world, with a huge percentage of the carbon footprint staying in the country.

• Although pollution and air quality in cities are among the world’s worst, water also is a huge challenge—ultimately worse than air pollution.

• The population is aging rapidly, and China lacks immigration or other sources of growth to keep up with the need for workers.

• The people of China have rising expectations for the future.

Reactions

The August troubles for the Chinese Communist Party could be a net positive, said Pickering, serving as a reminder to the Chinese government that it needs the rest of the world and doesn’t have all the answers inside China.

Another possibility, though less likely, he said, is that the party will “hunker down,” clamp down locally and increase its assertiveness globally.

In working with its own people, the Chinese government will need to maintain its support for institutions and opportunities for the Chinese people to get wealthy and allow them to have a political voice, Pickering said.

Although China is a communist state, there is a lot of local democracy, and the Chinese government is going to have to build on that, he commented.

Global Power

The U.S.-China relationship is now the most important bilateral relationship in the world, Pickering said, with both nations having a hard time figuring out how to work together, given their very different historical narratives.

Change is afoot, however. Although the Chinese government has looked internally for so long, it now has to learn to work with the rest of the world, Pickering observed. China is working with international institutions on a regular basis—and in some cases (Asian Infrastructure and Investment Bank) proposing new ones.

China is now a global power, and with that power comes “a different set of norms” than those to which China’s leaders are used to, he said. The events of the last month or so, he concluded, have shown the Chinese that they are going to have to adjust to this new global reality, perhaps more than they thought of before.

Susanne T. Stirling, vice president, international affairs, has headed the CalChamber international activities for nearly four decades. She is a gubernatorial appointee to the California Trade and Investment Advisory Council. She also serves on the District Export Council (appointed by the U.S. Secretary of Commerce), the National Export Council Steering Committee, the U.S. Chamber of Commerce International Committee, and the Chile-California Council. Originally from Denmark, she studied at the University of Copenhagen and holds a B.A. in international relations from the University of the Pacific, where she now serves as a regent. She earned an M.A. from the School of International Relations at the University of Southern California.

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